Of the three, the first one is the most common form of the consumption function used in analysis of national income. There are several reasons for this.
1. It portrays the short-run tendency of the consumption expenditure. It is this tendency that is treated as most appropriate in reflecting the pattern of consumption of vast majorities in most of the nations whether developed or underdeveloped.
2. When the purpose of analysis is measurement of consumption either at a point of time or over a period of one year with a view to chalking out appropriate policy- mix to regulate the pattern of consumption in future, it is the short-run consumption function that is found most suitable.
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3. ‘Ca’ is more likely to be non zero. The period before one gets to earn is generally the same in all the countries whether developed or underdeveloped. One normally starts one’s earning life after the age of 20 years on an average. Before that, income is zero but consumption is not.
4. In many less developed countries (LDCs), the extent of unemployment is quite high. Incomes of vast majorities are thus zero or low but the consumption expenditure is not. Such expenditures are financed either from accumulated savings of the past or from borrowings from anticipated future incomes but more often, they are provided for by relatives and parents.
The short-run consumption function thus represents the most common trend of consumption all over the world. Empirical studies conducted in this regard conclude that a consumption function with stable (constant) MPC and declining APC with increasing income is the most appropriate description of individual consumption.
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These empirical observations are in line with the short-run consumption function. The statement is consistent with Keynesian belief that the consumption function should have a positive intercept on the vertical axis.
The short-run consumption function (C = Ca + bYd or C = Ca + bY in case economy has only two sectors, namely, the households’ and the producers’ sectors), thus, possesses all the requisites expected of the most common consumption pattern.